Geopacific Resources has acquired 100% direct ownership of the flagship Woodlark gold project in Papua New Guinea, buying out fellow Australian Kula Gold’s remaining share in a cash and scrip transaction worth about $3.29m.
Kula will immediately utilise the cash component to repay a loan totalling about $0.72m to Geopacific.
The deal seems like exquisite timing for the company, with the gold price nearly 25% higher than that assumed in November’s definitive feasibility study for Woodlark, which already outlined robust economic metrics and strong margins to develop the project.
Additionally, full ownership streamlines the corporate structure with significant administrative cost reductions and importantly reduces the risk to external financiers, willing to fund the project’s start-up.
Geopacific Managing Director Ron Heeks said: “Moving to 100% ownership of the 1.6Moz Woodlark gold project is a major milestone for the company. Full ownership simplifies project financing discussions and further enhances the company’s attractiveness and general market appeal … (with) additional benefits … (including) a substantial reduction in corporate costs.”
“The timing of the transaction coincides with the near completion of project finance due diligence and a strengthening gold price that is well above the DFS pricing assumption of AUD$1,650/oz. Progression in these work streams alongside the increasing gold price is a positive step in taking advantage of the increasing margin.”
The company is now racing down the final lap with baton in hand and is currently in the closing stages of an Independent Technical Experts, or “ITE”, review of the gold project, with representatives attending a site visit to Woodlark Island this week.
Back in January, the ITE review was commissioned by a consortium of banks and non-bank lenders, after an indicative non-binding term sheet was received.
Perth-based SRK Consulting was appointed as the lead ITE to review the technical aspects of the Woodlark project on behalf of the group of potential lenders.
SRK completed an initial Fatal Flaws Review late in 2018, with none being identified for the project.
With the gold price only strengthening since, the free cash flow position of the proposed initial 13-year mine life project has ballooned with Mr Heeks saying in January: “Every AUD$10 (per ounce) increase in the gold price is an additional ~AUD$10m in revenue which is considerable upside for the +1Moz project ...”
November’s DFS study optimised the project at AUD$1,650 per ounce and produced a pre-tax free cash flow of $424m.
Geopacific recently received indicative costs to build the proposed gold processing plant on Woodlark Island from three international standard contractors.
The company said that an initial review of those costs showed that the pricing is in line with the DFS parameters completed last year by Lycopodium.
Total capital establishment costs for the Woodlark gold project come in at just under $200m, with a third of those monies required to construct the processing plant, which is very respectable considering the relatively isolated overseas location.
With respect to the near completion of the ITE review of Woodlark, Mr Heeks added:“The ITE review is progressing well and Geopacific is confident with the technical aspects of the DFS completed by industry-leaders Lycopodium, Mining Plus and MPR Geological.”
“The results from the initial ITE fatals flaws review (built) confidence in the Woodlark project in addition to the conservative approach undertaken in calculating the (mineral) resource. The resource estimate uses a fully diluted resource model with a significant dilution factor.”
“This provides additional comfort that mining at the estimated grade is achievable. The Woodlark deposit is a permitted project with robust economics that are improving with the current gold price ~AUD$350/oz higher than that used in DFS.”
Last month, the company appointed Ian Clyne as its new Chairman to actively drive financing arrangements for the gold project.
Mr Clyne has been part of the company’s board since 2016 and brings with him a wealth of corporate experience including most recently as Group CEO of Bank South Pacific Limited, based in PNG’s capital Port Moresby for five years.
It was a strategic move for Geopacific, with Mr Clyne being a strong advocate for PNG’s potential and its people and holding a high level of commitment to social and community issues within the mainly rural population of the developing country.
Commenting at the time, Mr Clyne said: “As the Chairman of Geopacific, my priority is to drive the Woodlark gold project towards a successful project finance outcome that will maximise shareholder and stakeholder value and returns."
“Woodlark Island is one of the most prospective regions of PNG and we take great pride in our positive relationships with the local community, the National & Provincial Governments, and the regulatory authorities who have also demonstrated strong levels of support for the permitted … project.”
The Woodlark project holds an ore reserve of nearly 29 million tonnes grading 1.12g/t gold for 1.04 million ounces, contained within a broader JORC-compliant mineral resource estimated at 1.57 million gold ounces.
This gold resource is also likely to build over time as the project has extensive gold and copper exploration potential, in a region where Geopacific holds the dominant land position on the 912 square kilometre area of Woodlark Island.
Once in production, the company will likely be able to self-fund and potentially sustain its mining operations at the Woodlark gold project to beyond the initial 13-year mine life.
The project area is blessed with flat terrain and soft outcropping ores with average metallurgical gold recoveries exceeding 90% during the first five years of production.
All permitting is granted and the project enjoys strong community support in the proven mining investment hub of PNG.
With full ownership of the exciting project within its grasp, the gold price behaving itself and a new Chairman at the helm, Geopacific now has clear air ahead towards the construction, development and ultimately gold production at the impressive and undervalued Woodlark project.
By Matt Birney
